by Daniel Gardner
The U.S. has rocketed through our debt ceiling. What does that mean? Washington is still spending money even though technically federal spending is supposed to be capped at $14.3 Trillion.
Like any large entity that controls large sums of money, Washington can move money around, stop paying money into this account for a while, pay interest from that account for a while, and generally stay afloat through accounting gimmicks…sort of like Enron…. But, didn't Enron…?
Ok, so now we're counting down to August 2, the drop-dead date for crashing the "debt ceiling." Administration officials from the President to the Fed Chairman to Treasury Secretary Timothy Geithner are screaming, "The debt ceiling is crashing!"
In a May 2 letter to House Speaker John Boehner, Geithner warned not raising the debt ceiling would create "a catastrophic economic impact" following with, "Default would cause a financial crisis potentially more severe than the crisis from which we are only now starting to recover."
Boehner responded, "It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process."
In other words, the problem is not that the debt ceiling is too low; it's that spending is too high!
Have you heard one of the President's suggestions for dealing with future debt ceiling crises? He suggested 'triggers' that would automatically raise tax rates if Washington spent beyond their limit. Great! They spend irresponsibly and we get automatic tax hikes (pay cuts) to pay for their incompetence!
President Reagan used to say, "Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other."
Mrs. Wilson, one of my high school math teachers, taught me one has to identify the problem before he can begin to solve it. The problem in Washington is not the debt ceiling (which is set arbitrarily by a bunch of nincompoops playing politics).
Spending aka borrowing $1.65 Trillion in deficits this year and planning to spend trillions more in deficits in succeeding years is the problem - and succeeding in this case does not spell success.
The battle is set between the administration who wants to continue spending and Republicans in the House who want to reform the budget process and cut spending by at least as much as they raise the debt ceiling.
What happens if they don't raise the debt ceiling? Presumably Washington will have to live within its means cutting spending on government programs.
What if they don't cut spending? We'll look like Greece in four to six years, and we'll very likely see similar rioting in the streets when government payments get cut.
Regardless of whether they raise the debt ceiling, eventually and certainly Washington will have to cut entitlement spending. It would be better to develop a plan now to cut spending than to have to make radical emergency cuts in the next four to six years.